Investments in and Advances to Unconsolidated Entities

The Company has investments in and advances to various unconsolidated entities. At January 31, 2013, the Company had investments in and advances to various unconsolidated entities of $321.9 million, and was committed to invest or advance $91.9 million to these entities if they require additional funding. At January 31, 2013, the Company had accrued $2.2 million of aggregate exposure with respect to its estimated obligations to unconsolidated entities in which it has an investment. More information regarding its investments in, advances to and future commitments to these entities is provided below.

At January 31, 2013, the Company determined that two of its joint ventures were VIEs under the guidance within FASB Accounting Standards Codification ("ASC") 810, "Consolidation". However, the Company concluded that it was not the primary beneficiary of the VIEs because the power to direct the activities of these VIEs that most significantly impact their performance was shared by the Company and the VIEs' other members. Business plans, budgets and other major decisions are required to be unanimously approved by all members. Management and other fees earned by the Company are nominal and believed to be at market rates and there is no significant economic disproportionality between the Company and other members.

The Company’s investments in these entities are accounted for using the equity method of accounting.

Development Joint Ventures

The Company has investments in and advances to a number of joint ventures with unrelated parties to develop land (“Development Joint Ventures”). Some of these Development Joint Ventures develop land for the sole use of the venture participants, including the Company, and others develop land for sale to the joint venture participants and to unrelated builders. The Company recognizes its share of earnings from the sale of home sites by the Development Joint Ventures to other builders. With regard to home sites the Company purchases from the Development Joint Ventures, the Company reduces its cost basis in those home sites by its share of the earnings on the home sites it purchases. At January 31, 2013, the Company had approximately $106.4 million invested in or advanced to the Development Joint Ventures. In addition, at January 31, 2013, the Company had a funding commitment of $13.5 million to two Development Joint Ventures which would be funded if additional investment in the ventures is required.

The Company has a 50% interest in a joint venture that is developing over 2,000 home sites in Orange County, California on land that it owns. Under the terms of the operating agreement, the Company will acquire 266 home sites in the first phase of the property from the joint venture. The Company intends to acquire approximately 545 additional home sites from the joint venture. The Company has a commitment to provide up to $10 million of additional funds to this joint venture, if needed. The joint venture has an $80 million credit facility from a bank to fund the development of the property; at January 31, 2013, the venture had $50.7 million borrowed under the facility. The Company executed a limited completion and a limited repayment guarantee under the loan agreement. The obligations under the guarantees are joint and several and contain a right of contribution agreement of each partner.

Planned Community Joint Venture

The Company entered into a joint venture in October 2008 for the development and sale of homes in a master planned community. At January 31, 2013, the Company had an investment of $31.6 million in this joint venture. At January 31, 2013, the participants agreed to contribute additional funds of up to $8.3 million each, if required.

Other Joint Ventures

At January 31, 2013, the Company had an aggregate of $143.4 million of investments in and advances to various joint ventures with unrelated parties to develop luxury for-sale and rental residential units, commercial space and a hotel. At At January 31, 2013, the Company had $70.1 million of funding commitments to three of these joint ventures. Several of the joint ventures expect to finance future construction with external financing. In addition, the Company has guaranteed approximately $11.9 million of joint venture liabilities, including approximately $9.8 million of payments related to a ground lease.

Toll Brothers Realty Trust and Trust II

In fiscal 2005, the Company, together with the Pennsylvania State Employees Retirement System (“PASERS”), formed Toll Brothers Realty Trust II (“Trust II”) to be in a position to invest in commercial real estate opportunities. Trust II is owned 50% by the Company and 50% by an affiliate of PASERS. At January 31, 2013, the Company had an investment of $3.0 million in Trust II. Prior to the formation of Trust II, the Company formed Toll Brothers Realty Trust (“Trust”) in 1998 to invest in commercial real estate opportunities. The Trust is effectively owned one-third by the Company; one-third by Robert I. Toll, Bruce E. Toll (and members of his family), Douglas C. Yearley, Jr. and former members of the Company’s senior management; and one-third by an affiliate of PASERS (collectively, the “Shareholders”). As of January 31, 2013, the Company had a net investment in the Trust of $20 thousand. The Company provides development, finance and management services to the Trust and recognized fees under the terms of various agreements in the amounts of $0.6 million and $0.5 million in the three-month periods ended January 31, 2013 and 2012, respectively.

Structured Asset Joint Venture

The Company, through Gibraltar Capital and Asset Management LLC (“Gibraltar”), is a 20% participant with two unrelated parties that purchased a 40% interest in an entity that owns and controls a portfolio of loans and real estate (“Structured Asset Joint Venture”). At January 31, 2013, the Company had an investment of $37.5 million in this Structured Asset Joint Venture. At January 31, 2013, the Company did not have any commitments to make additional contributions to this Structured Asset Joint Venture and has not guaranteed any of the joint venture’s liabilities.

The condensed consolidated balance sheets, as of the dates indicated, and the condensed consolidated statements of operations, for the periods indicated, for the Company’s unconsolidated entities in which it has an investment, aggregated by type of business, are included below (in thousands). The column titled "Home Building Joint Ventures" includes the Planned Community and Other Joint Ventures described above.

Condensed Balance Sheets:



	January 31, 2013
	Develop- ment Joint Ventures		Home Building Joint Ventures		Trust and Trust II			Structured Asset Joint Venture		Total
Cash and cash equivalents	$	21,573	$	33,450	$	10,166		$	63,753	$	128,942
Inventory	263,743		310,002		5,676					579,421
Non-performing loan portfolio								185,142		185,142
Rental properties					170,406					170,406
Real estate owned (“REO”)					1,036			261,237		262,273
Other assets (1)	10,389		71,319		9,030			277,305		368,043
Total assets	$	295,705	$	414,771	$	196,314		$	787,437	$	1,694,227
Debt (1)	$	121,435	$	33,859	$	194,439		$	311,801	$	661,534
Other liabilities	14,174		8,225		5,348			501		28,248
Members’ equity (deficit)	160,096		372,687		(3,473		)	190,054		719,364
Noncontrolling interest								285,081		285,081
Total liabilities and equity	$	295,705	$	414,771	$	196,314		$	787,437	$	1,694,227
Company’s net investment in unconsolidated entities (2)	$	106,368	$	174,967	$	2,982		$	37,534	$	321,851



	October 31, 2012
	Develop- ment Joint Ventures		Home Building Joint Ventures		Trust and Trust II			Structured Asset Joint Venture		Total
Cash and cash equivalents	$	17,189	$	40,126	$	11,005		$	44,176	$	112,496
Inventory	255,561		294,724		5,643					555,928
Non-performing loan portfolio								226,315		226,315
Rental properties					173,767					173,767
Real estate owned (“REO”)								254,250		254,250
Other assets (1)	12,427		72,301		9,182			237,476		331,386
Total assets	$	285,177	$	407,151	$	199,597		$	762,217	$	1,654,142
Debt (1)	$	96,862	$	34,184	$	195,359		$	311,801	$	638,206
Other liabilities	13,890		5,707		5,202			561		25,360
Members’ equity (deficit)	174,425		367,260		(964		)	179,942		720,663
Noncontrolling interest								269,913		269,913
Total liabilities and equity	$	285,177	$	407,151	$	199,597		$	762,217	$	1,654,142
Company’s net investment in unconsolidated entities (2)	$	116,452	$	173,465	$	3,357		$	37,343	$	330,617


(1)	Included in other assets of the Structured Asset Joint Venture at January 31, 2013 and October 31, 2012 is $277.3 million and $237.5 million, respectively, of restricted cash held in a defeasance account which will be used to repay debt of the Structured Asset Joint Venture.

(2)

Differences between the Company’s net investment in unconsolidated entities and its underlying equity in the net assets of the entities is primarily a result of the acquisition price of an investment in an entity in fiscal 2012 which was in excess of the Company's pro-rata share of the underlying equity, impairments related to the Company’s investments in unconsolidated entities, a loan made to one of the entities by the Company, and distributions from entities in excess of the carrying amount of the Company’s net investment.

Condensed Statements of Operations and Comprehensive Income (Loss):



	For the three months ended January 31, 2013
	Develop- ment Joint Ventures			Home Building Joint Ventures		Trust and Trust II			Structured Asset Joint Venture			Total
Revenues	$	1,627		$	8,970	$	9,682		$	9,705		$	29,984
Cost of revenues	1,219			7,105		4,293			10,338			22,955
Other expenses	191			193		5,766			1,058			7,208
Total expenses—net	1,410			7,298		10,059			11,396			30,163
Gain on disposition of loans and REO									26,892			26,892
Income (loss) from operations	217			1,672		(377		)	25,201			26,713
Other income	3			19					79			101
Net income (loss) before noncontrolling interest	220			1,691		(377		)	25,280			26,814
Less: Net income attributable to noncontrolling interest									(15,168		)	(15,168		)
Net income (loss)	220			1,691		(377		)	10,112			11,646
Other comprehensive income						302						302
Total comprehensive income (loss)	$	220		$	1,691	$	(75	)	$	10,112		$	11,948
Company’s equity in earnings (losses) of unconsolidated entities (3)	$	(98	)	$	843	$	425		$	1,913		$	3,083



	For the three months ended January 31, 2012
	Develop- ment Joint Ventures		Home Building Joint Ventures		Trust and Trust II			Structured Asset Joint Venture			Total
Revenues	$	33,584	$	23,430	$	9,476		$	8,133		$	74,623
Cost of revenues	31,771		17,794		3,343			11,067			63,975
Other expenses	225		945		6,785			2,631			10,586
Total expenses—net	31,996		18,739		10,128			13,698			74,561
Loss on disposition of loans and REO								(44		)	(44		)
Income (loss) from operations	1,588		4,691		(652		)	(5,609		)	18
Other income	2,653		5					137			2,795
Net income (loss) before noncontrolling interest	4,241		4,696		(652		)	(5,472		)	2,813
Less: Net loss attributable to noncontrolling interest								3,283			3,283
Net income (loss)	4,241		4,696		(652		)	(2,189		)	6,096
Other comprehensive loss					(447		)				(447		)
Total comprehensive income (loss)	$	4,241	$	4,696	$	(1,099	)	$	(2,189	)	$	5,649
Company’s equity in earnings (losses) of unconsolidated entities (3)	$	1,996	$	4,520	$	623		$	(452	)	$	6,687

(3)

Differences between the Company’s equity in earnings (losses) of unconsolidated entities and the Company's percentage interest in the underlying net income (loss) of the entities is primarily a result of impairments related to the Company’s investment in unconsolidated entities, distributions from entities in excess of the carrying amount of the Company’s net investment, and the Company’s share of the entities’ profits related to home sites purchased by the Company which reduces the Company’s cost basis of the home sites.